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Limited Attention as a Scarce Resource in Information-Rich Economies

  • Josef Falkinger

This article uses basic facts from the psychology of attention to show how the limited attention of consumers affects economic competition. The article determines endogenously whether an economy is information rich or information poor. A conventional economic equilibrium results if subjects have spare attention capacity. At the positive level, the respective impacts of advances in information technology, international integration and the media on equilibrium diversity and level of attention-seeking activities are shown. At the normative level, the issues of welfare, efficiency and optimal policy interventions are addressed. Copyright � The Author(s). Journal compilation � Royal Economic Society 2008.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 118 (2008)
Issue (Month): 532 (October)
Pages: 1596-1620

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Handle: RePEc:ecj:econjl:v:118:y:2008:i:532:p:1596-1620
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  1. Ricardo Reis, 2004. "Inattentive Consumers," NBER Working Papers 10883, National Bureau of Economic Research, Inc.
  2. Xavier Gabaix & David Laibson & Guillermo Moloche & Stephen Weinberg, 2006. "Costly Information Acquisition: Experimental Analysis of a Boundedly Rational Model," American Economic Review, American Economic Association, vol. 96(4), pages 1043-1068, September.
  3. Reis, Ricardo, 2005. "Inattentive Producers," CEPR Discussion Papers 5393, C.E.P.R. Discussion Papers.
  4. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June.
  5. Gabaix, Xavier & Laibson, David Isaac & Moloche, Guillermo & Stephen, Weinberg, 2003. "The allocation of attention: theory and evidence," MPRA Paper 47339, University Library of Munich, Germany.
  6. Hirshleifer, David & Teoh, Siew Hong, 2003. "Limited attention, information disclosure, and financial reporting," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 337-386, December.
  7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  8. Falkinger, Josef, 2007. "Attention economies," Journal of Economic Theory, Elsevier, vol. 133(1), pages 266-294, March.
  9. Arjo Klamer & Hendrik van Dalen, 2001. "Attention and the art of scientific publishing," Journal of Economic Methodology, Taylor & Francis Journals, vol. 9(3), pages 289-315.
  10. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  11. Bryan Caplan & Tyler Cowen, 2004. "Do We Underestimate the Benefits of Cultural Competition?," American Economic Review, American Economic Association, vol. 94(2), pages 402-407, May.
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